Tat Hong’s 1QFY15 revenue and EBIT were in-line with our estimates - revenue came in 0.9% above our expectation even as it declined 6.5% YoY to S$164.2m, while EBIT at S$15.6m was just 3.1% below our forecast. However, higher-than-expected tax (actual: S$S$4.1m, estimate: S$2.4m) resulted in PATMI coming in below our estimate as it declined 27.7% to S$6.0m. We think the effective tax rate of 40% this quarter is abnormally high (5-year historical: 27.2%) and thus deem overall results to be within expectations. Australia ceased to be the main culprit as there are better YoY performances from the Distribution and Crane Rental businesses in Australia. Management continued to be cautiously optimistic of a better performance in FY15 compared to FY14. We derive a new fair value estimate of S$0.84 (previous: S$0.89) based on 11.2x FY15F EPS and maintain HOLD.
1QFY15 results met expectations
Tat Hong’s 1QFY15 revenue and EBIT were in-line with our estimates - revenue came in 0.9% above our expectation even as it declined 6.5% YoY to S$164.2m, while EBIT at S$15.6m was just 3.1% below our forecast. However, higher-than-expected tax (actual: S$S$4.1m, estimate: S$2.4m) resulted in PATMI coming in below our estimate as it declined 27.7% to S$6.0m. We think the effective tax rate of 40% this quarter is abnormally high (5-year historical: 27.2%) and thus deem overall results to be within expectations. 1QFY15 operating expenses decreased S$4.0m or 7.6% to S$48.4m. This is mainly due to the S$3.7m lower staff expenditure (S$2.4m in other operating expenses, S$1.3m in administrative expenses) as Tat Hong adjusted its headcount in Australia, Singapore and Indonesia.
Early signs of bottoming out
Revenue declined YoY across all divisions other than Tower Crane Rental in a similar vein to previous quarter, with >10% drops in the General Equipment Rental (-20.5% to S$16.3m) and Distribution (-13.5% to S$57.1m). Gross profit (GP) margin painted a different picture as it rose YoY for all divisions except for Crane Rental, with overall GP margin remaining constant at 36.4%. Better GP margins were achieved from General Equipment Rental and Tower Crane divisions due to cost containment measures, while for Distribution it was because of lower service cost. We noted that Australia ceased to be the main culprit as there are better performances from the Distribution and Crane Rental businesses in Australia. We understand that Australian Distribution business was lifted by sales of new models while Crane Rental was boosted by LNG projects. Additionally, on a QoQ basis we see early signs of bottoming out as revenue rose for all divisions other than Distribution.
Management cautiously optimistic
Management continued to be cautiously optimistic of a better performance in FY15 compared to FY14. We derive a new fair value estimate of S$0.84 (previous: S$0.89) based on 11.2x FY15F EPS and maintain HOLD, noting that the current share price (S$0.85) is well-supported at a 20% discount to FY15F book value per share.
Tat Hong’s 1QFY15 revenue and EBIT were in-line with our estimates - revenue came in 0.9% above our expectation even as it declined 6.5% YoY to S$164.2m, while EBIT at S$15.6m was just 3.1% below our forecast. However, higher-than-expected tax (actual: S$S$4.1m, estimate: S$2.4m) resulted in PATMI coming in below our estimate as it declined 27.7% to S$6.0m. We think the effective tax rate of 40% this quarter is abnormally high (5-year historical: 27.2%) and thus deem overall results to be within expectations. 1QFY15 operating expenses decreased S$4.0m or 7.6% to S$48.4m. This is mainly due to the S$3.7m lower staff expenditure (S$2.4m in other operating expenses, S$1.3m in administrative expenses) as Tat Hong adjusted its headcount in Australia, Singapore and Indonesia.
Early signs of bottoming out
Revenue declined YoY across all divisions other than Tower Crane Rental in a similar vein to previous quarter, with >10% drops in the General Equipment Rental (-20.5% to S$16.3m) and Distribution (-13.5% to S$57.1m). Gross profit (GP) margin painted a different picture as it rose YoY for all divisions except for Crane Rental, with overall GP margin remaining constant at 36.4%. Better GP margins were achieved from General Equipment Rental and Tower Crane divisions due to cost containment measures, while for Distribution it was because of lower service cost. We noted that Australia ceased to be the main culprit as there are better performances from the Distribution and Crane Rental businesses in Australia. We understand that Australian Distribution business was lifted by sales of new models while Crane Rental was boosted by LNG projects. Additionally, on a QoQ basis we see early signs of bottoming out as revenue rose for all divisions other than Distribution.
Management cautiously optimistic
Management continued to be cautiously optimistic of a better performance in FY15 compared to FY14. We derive a new fair value estimate of S$0.84 (previous: S$0.89) based on 11.2x FY15F EPS and maintain HOLD, noting that the current share price (S$0.85) is well-supported at a 20% discount to FY15F book value per share.
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